Group Backed by Activist Hedge Fund Reports 7.7% Stake in Gleacher

A group backed by the activist hedge fund Clinton Group reported a 7.7% stake in Gleacher & Co. and released the names on a slate of 12 candidates for the board as a battle for control of the struggling company heats up.

The nominees include Gleacher’s Chief Executive Officer Thomas J. Hughes as well as former Gleacher CEO Lee Fensterstock and two executives of the Clinton Group.

In a securities filing on Thursday, Clinton Group said the nominees would “help create value” by executing a rapid turnaround plan for Gleacher that includes “redefining it as a publicly traded asset management firm with the capacity to generate a consistent source of revenue and profitability.”

The slate competes with a group of nominees proposed by Gleacher’s biggest outside shareholder, MatlinPatterson Global Advisers, setting up a proxy battle for the firm at the upcoming shareholder meeting on May 23. MatlinPatterson holds 28% of Gleacher shares, while ex-chairman and firm namesake Eric Gleacher holds another 12%.

Mr. Hughes was briefly associated with Clinton Group, acting as its president and chief operating officer from November 2005 to March 2006.

Representatives of Gleacher and Clinton Group could not immediately be reached.

Gleacher’s board has been in turmoil since last year, when a special committee of directors was formed to explore strategic options after an approach by Stifel Financial Corp., which proposed a $250 million takeover. Merger talks never went anywhere, people familiar with the matter said.

Earlier this month, Gleacher shut down its mortgage bond, interest rate and credit trading operations–its biggest remaining businesses–and said it was in talks with an unnamed third party about a potential business combination.

MatlinPatterson nominated a slate of eight directors in February to replace the existing board. Four current directors, making up the members of the board’s special committee, said they would not stand for re-election because they had been told MatlinPatterson wouldn’t support them. MatlinPatterson’s slate includes three current board members and five new nominees, but excludes Mr. Hughes.

Clinton Group said previously it was nominating a competing group of directors.

Gleacher’s exit from trading comes after heavy staff defections that depleted its staff. Last month, Gleacher noted a “serious decline” in its financial results for the first few months of this year after a series of adverse events.